News Releases

News Release

The Company Recorded $7.9 Million in Retroactive Northeast Regulatory Fees, Assessments and Taxes in the Second Quarter

LOS ANGELES--(BUSINESS WIRE)--Aug. 4, 2009--
Health Net, Inc. (NYSE:HNT) today announced second quarter 2009 GAAP net
income of $40.1 million, or $0.38 per diluted share, compared with
$76.7 million, or $0.71 per share, for the second quarter of 2008.

The second quarter 2009 GAAP results include the effect of a $17.6
million pretax charge. The charge consists of $19.6 million comprised
primarily of severance and other expenses related to the company’s
previously announced operations strategy, reduced by a $2.1 million
benefit from a litigation reserve true-up.

Excluding the after-tax impact of the charge, net income in the second
quarter of 2009 was $50.8 million, or $0.49 per diluted share, which was
in line with the company’s expectations. Net income in the second
quarter of 2008 was $80.0 million, or $0.74 per diluted share, excluding
the impact of a $13.0 million pretax charge related to the company’s
operations strategy.

The company’s second quarter results also include the impact of
approximately $7.9 million in retroactive regulatory fees, assessments
and premium taxes relating to its Northeast health plans.

“Our second quarter results show continued progress consistent with the
strategy we laid out at our investor day last November. We are
particularly pleased with the performance of our Western health plans,”
said Jay Gellert, president and chief executive officer of Health Net,
Inc.

On July 20, 2009, Health Net announced that it had entered into a
definitive agreement with UnitedHealthcare for the sale of Health Net’s
Northeast health plan subsidiaries and membership renewal rights.

Membership

Total health plan enrollment as of June 30, 2009 was approximately 3.6
million members, a decrease of 158,000 members, or 4.2 percent, compared
with June 30, 2008. Sequentially, total health plan enrollment increased
by 42,000 members, or 1.2 percent, from March 31, 2009.

Total commercial risk enrollment decreased by 180,000 members, or 8.4
percent, to approximately 2.0 million members as of June 30, 2009
compared with June 30, 2008. Sequentially, commercial risk enrollment
decreased by 5,000 members, or 0.3 percent, since March 31, 2009.

“We are encouraged that, due to new sales, the commercial membership
attrition rate is slowing. However, a weak labor market continues to
have an impact on membership,” said Jim Woys, Health Net’s chief
operating officer.

“Our Western region health plans produced commercial new sales of 42,000
members in the second quarter, with 15,000 of these new members in
California’s more affordable products, including Salud con Health Net,
Elect Open Access and narrow network products,” Woys added. “Many
customers are choosing these more affordable alternatives, especially
given the current economic environment. The diversity and flexibility of
our products are meeting these needs.”

Enrollment in the company’s Medicare Advantage plans decreased by 1,000
members, or 0.4 percent, to 284,000 members at the end of the second
quarter of 2009 compared with the end of the second quarter of 2008.
Sequentially, Medicare Advantage membership increased by 2,000 members,
or nearly 1.0 percent, from March 31, 2009.

Membership in the company’s Medicare PDP plans was 458,000 at the end of
the second quarter of 2009, a decrease of 68,000 members, or 12.9
percent, compared with the end of the second quarter of 2008.
Sequentially, PDP membership increased by 9,000 members, or 2.0 percent,
from March 31, 2009.

Medicaid enrollment at June 30, 2009 was 878,000 members, an increase of
97,000 members, or 12.4 percent, from June 30, 2008. Sequentially,
Medicaid membership increased by 36,000 members, or 4.3 percent, from
March 31, 2009. Both the quarter-over-quarter and sequential increases
in Medicaid enrollment were the result of the economic downturn that
causes the Medicaid-eligible population to increase.

Revenues, Health Care Costs and G&A
Expenses

Health Net’s total revenues increased 4.5 percent in the second quarter
of 2009 to $4.0 billion from $3.8 billion in the second quarter of 2008.
Health plan services premium revenues increased approximately 1.2
percent to approximately $3.2 billion in the second quarter of 2009
compared with $3.1 billion in the second quarter of 2008.

The company’s Government contracts revenues increased 19.7 percent in
the second quarter of 2009 to $832.1 million from $694.9 million in the
second quarter of 2008. The increase was the result of Option Period 6
pricing for the company’s TRICARE contract. Additionally, Health Net’s
Military & Family Life Consultant program continued to grow. This
program with the Department of Defense is administered by Health Net’s
behavioral health subsidiary, Managed Health Network, Inc. (MHN).

The health plan services medical care ratio (MCR) was 86.2 percent in
the second quarter of 2009 and 85.3 percent in the second quarter of
2008. On an adjusted1 basis, the health plan services MCR in
the second quarter of 2009 was 86.3 percent compared with 85.3 percent
in the second quarter of 2008.

The commercial MCR was 86.1 percent in the second quarter of 2009 and
84.2 percent in the second quarter of 2008. Excluding the $2.1 million
litigation reserve true-up benefit in the second quarter of 2009, the
commercial MCR would have been 10 basis points higher than the reported
commercial MCR, or 86.2 percent.

Commercial premium yields per member per month (PMPM) increased by 8.0
percent in the second quarter of 2009 compared with the second quarter
of 2008.

Total commercial health care costsPMPM increased 10.5
percent in the second quarter of 2009 compared with the second quarter
of 2008. Excluding the litigation reserve true-up benefit, total
commercial health care costs PMPM would have been 10 basis points higher
in the second quarter of 2009, or 10.6 percent.

“Our second quarter 2008 commercial health care costs were restated
higher in the second half of last year, and the 2009 second quarter was
impacted by H1N1 flu,” Woys said. “Taking this into account, we remain
on track to produce a positive commercial premium yield and health care
cost spread of approximately 50 basis points for the full year of 2009.
We continue to maintain pricing discipline, and our underlying
commercial health care cost trends are consistent with expectations,”
said Woys.

Health Net’s Medicare plans continued to perform well in the second
quarter of 2009. The Medicare Advantage MCR improved by 450 basis points
in the second quarter of 2009 compared with the second quarter of 2008.

“We made many adjustments to our benefit packages and premiums in both
Medicare Advantage and Part D for 2009, and we are pleased that these
changes are producing the desired results,” added Woys. “Our Medicare
Advantage plans continue to be popular in our core, network-model
markets.”

The Government contracts cost ratio was 95.1 percent in the second
quarter of 2009 compared with 94.7 percent in the second quarter of 2008
and 95.5 percent in the first quarter of 2009. The sequential
improvement in the second quarter of 2009 was a result of Option Period
6 pricing on the TRICARE contract and additional volume on the Military
& Family Life Consultant contract.

“The Government contracts ratio in the second quarter of 2009 was in
line with our expectations,” said Woys. “We continue to expect that the
Government contracts ratio will be in the 95.0 to 95.5 percent range in
2009.”

On a GAAP basis, general and administrative (G&A) expense was $332.2
million in the second quarter of 2009 compared with $297.5 million in
the second quarter of 2008. On an adjusted basis1, G&A
expense was $312.5 million in the second quarter of 2009 compared with
$284.4 million in the second quarter of 2008.

On an adjusted1 basis, Health Net’s G&A expense ratio in the
second quarter of 2009 increased 80 basis points compared with the
second quarter of 2008. “Excluding the impact of the regulatory fees,
assessments and premium taxes related to the Northeast business, G&A in
the second quarter was consistent with our plans. We continue to expect
a G&A expense ratio of 9.6 percent to 9.8 percent in 2009,” said Woys.

Health Net’s selling expenses of $81.4 million in the second quarter of
2009 decreased by $6.9 million compared with the second quarter of 2008,
primarily a result of a decrease in commercial membership during the
quarter.

Balance Sheet

Cash and investments as of June 30, 2009 were $2.1 billion compared with
$2.3 billion as of June 30, 2008, and $2.1 billion as of March 31, 2009.

Reserves for claims and other settlements as of June 30, 2009 were $1.2
billion compared with $1.4 billion as of June 30, 2008.

Days claims payable (DCP), including provider and other claims
settlements and charges, capitation payments and Medicare Part D
expenses, for the second quarter of 2009 decreased by 4.7 days to 43.1
days compared with 47.8 days in the second quarter of 2008, and
decreased sequentially by 1.0 day compared with the first quarter of
2009.

On an adjusted2 basis, DCP in the second quarter of 2009
decreased by 1.8 days to 54.2 days compared with the second quarter of
2008, and decreased by 0.9 days sequentially.

“The small sequential decrease in DCP is the result of an $85.2 million
reduction in claims payable during the second quarter of 2009,” said
Joseph Capezza, Health Net’s chief financial officer. “In the context of
the Northeast transaction, we reduced claims inventory in the Northeast
by 32 percent. We believe that this was a prudent step as we prepare for
the transition of the Northeast business to UnitedHealthcare.”

The company’s debt-to-total capital ratio was 25.2 percent as of June
30, 2009 compared with 27.8 percent as of June 30, 2008 and 26.3 percent
as of March 31, 2009.

Cash Flow

Operating cash flow was negative $54.2 million in the second quarter of
2009. This result was driven by an $85.2 million sequential reduction in
claims payables due to inventory reductions, certain legal settlements
and the payment of provider shared-risk settlements. In addition, the
company paid $30 million, primarily related to previously recorded
charges for severance and other items during the quarter.

“We anticipate receiving approximately $250 million in Part D and
Medicare risk adjuster payments in the second half of 2009. We received
$100 million of that in July 2009,” said Capezza. “Therefore, we
continue to believe that operating cash flow for the full year of 2009
will be approximately $325 million to $350 million.”

2009 Guidance

Including the impact of $60 million to $70 million in expected
operations strategy-related pretax charges in 2009, Health Net continues
to expect 2009 full-year GAAP earnings per diluted share of $1.85 to
$2.05 based on expected diluted weighted average shares of 104 to 105
million shares. Excluding these charges, the company continues to expect
full-year 2009 earnings per diluted share of $2.25 to $2.35.

“Due to retroactive regulatory fees, assessments and premium taxes in
the Northeast that were not included in our original plan, we are
reducing the upper end of our GAAP and non-GAAP guidance by $0.05 per
diluted share,” said Capezza.

The company is currently evaluating the impact of the potential sale of
the Northeast business on its 2009 financial results, including
potential impairment of goodwill and other intangibles, tax benefits,
severance costs, other transaction-related costs and operating costs
that will be incurred during the transition period following the close
of the transaction.

The table on the following page updates previously issued full-year 2009
guidance.

Metric

2009 Guidance

Year-end Membership

Commercial Risk: –3% to –5%

Medicaid: +6% to +8% (previously +4% to +5%)

Medicare Advantage: –1% to –2%

PDP: –15% to –20%

Consolidated Revenues

$15.5 billion to $16.0 billion

Commercial Yields

~ 7.5% – 8.0% (previously ~8.0 – 8.5%)

Commercial

Health Care Cost Trends

~ 7.0% – 7.5% (previously ~7.5 – 8.0%)

Selling Cost Ratio

~ 2.9%

Government Contracts Ratio

~ 95.0% to 95.5%

G&A Expense Ratio((a))

~ 9.6% to 9.8%

Tax Rate(a)

38.5% to 38.7%

Weighted-average Fully

Diluted Shares Outstanding

104 million to 105 million

GAAP EPS((b))

$1.85 to $2.05 (previously $1.85 to $2.10)

Non-GAAP EPS((a))

$2.25 to $2.35 (previously $2.25 to $2.40)

(a) Excludes the impact of expected operations
strategy-related charges of $60 million to $70 million in 2009.

(b) The company is currently evaluating the impact of the
potential sale of the Northeast business on its 2009 financial results,
including potential impairment of goodwill and other intangibles, tax
benefits, severance costs, other transaction-related costs and operating
costs that will be incurred during the transition period following the
close of the transaction.

Conference Call

As previously announced, Health Net will discuss the company’s second
quarter 2009 results during a conference call on Tuesday, August 4,
2009, beginning at approximately 11:00 a.m. Eastern time. The conference
call should be accessed at least 15 minutes prior to its start with the
following numbers:

866.393.1637 (Domestic)

800.642.1687 (Replay – Domestic)

706.643.5711 (International)

706.645.9291 (Replay – International)

An access code is required for both the live conference call and the
replay. The access code is 17080650. A replay of the conference call
will be available through 12.00 a.m. Eastern time on August 9, 2009. A
live webcast and replay of the conference call also will be available at www.healthnet.com
under “Investor Relations.” The conference call webcast is open to all
interested parties. Anyone listening to the company’s conference call
will be presumed to have read Health Net’s Annual Report on Form 10-K
for the year ended December 31, 2008, Quarterly Report on Form 10-Q for
the quarter ended March 31, 2009, and other reports filed by the company
from time to time with the Securities and Exchange Commission.

About Health Net

Health Net, Inc. is among the nation’s largest publicly traded managed
health care companies. Its mission is to help people be healthy, secure
and comfortable. The company’s health plans and government contracts
subsidiaries provide health benefits to approximately 6.7 million
individuals across the country through group, individual, Medicare,
Medicaid and TRICARE and Veterans Affairs programs. Health Net’s
behavioral health subsidiary, MHN, provides mental health benefits to
approximately 6.6 million individuals in all 50 states. The company’s
subsidiaries also offer managed health care products related to
prescription drugs, and offer managed health care product coordination
for multi-region employers and administrative services for medical
groups and self-funded benefits programs.

For more information on Health Net, Inc., please visit the company’s Web
site at www.healthnet.com.

Cautionary Statements

All statements in this press release, other than statements of
historical information provided herein, may be deemed to be
forward-looking statements and as such are subject to a number of risks
and uncertainties. These statements are based on management’s analysis,
judgment, belief and expectation only as of the date hereof, and are
subject to uncertainty and changes in circumstances. Without limiting
the foregoing, statements including the words “believes,” “anticipates,”
“plans,” “expects,” “may,” “should,” “could,” “estimate,” “intend” and
other similar expressions are intended to identify forward-looking
statements. Actual results could differ materially due to, among other
things, any failure to close the pending sale of our Northeast business;
costs, fees and expenses related to the pending sale and proposed
post-closing administrative services; potential termination of our
TRICARE North operations; rising health care costs; a continued decline
in the economy; negative prior period claims reserve developments;
investment portfolio impairment charges; volatility in the financial
markets; trends in medical care ratios; unexpected utilization patterns
or unexpectedly severe or widespread illnesses; membership declines;
rate cuts affecting our Medicare or Medicaid businesses; litigation
costs; regulatory issues; operational issues; health care reform and
general business and market conditions. Additional factors that could
cause actual results to differ materially from those reflected in the
forward-looking statements include, but are not limited to, the risks
discussed in the “Risk Factors” section included within the company's
most recent Annual Report on Form 10-K, subsequent quarterly reports on
Form 10-Q, and the risks discussed in the company’s other filings with
the Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements. The company
undertakes no obligation to publicly revise any of its forward-looking
statements to reflect events or circumstances that arise after the date
of this release.

Footnotes

1Detailed explanations of the non-GAAP financial measures
referred to in this release and reconciliations to the comparable GAAP
measures are included in the attached financial tables.

2See footnote (a) in the Notes to Consolidated Financial
Statements in the financial schedules attached to this release for a
reconciliation of this information to the comparable GAAP financial
measure.

Health Net, Inc.

Enrollment Data - By State

(In thousands)

Change from

March 31, 2009

June 30, 2008

June 30,

Mar 31,

June 30,

Increase/

%

Increase/

%

2009

2009

2008

(Decrease)

Change

(Decrease)

Change

California

Large Group

908

920

971

(12

)

(1.3

)%

(63

)

(6.5

)%

Small Group and Individual

380

393

453

(13

)

(3.3

)%

(73

)

(16.1

)%

Commercial Risk

1,288

1,313

1,424

(25

)

(1.9

)%

(136

)

(9.6

)%

ASO

3

2

5

1

50.0

%

(2

)

(40.0

)%

Total Commercial

1,291

1,315

1,429

(24

)

(1.8

)%

(138

)

(9.7

)%

Medicare Advantage

134

132

126

2

1.5

%

8

6.3

%

Medi-Cal

827

793

737

34

4.3

%

90

12.2

%

Total California

2,252

2,240

2,292

12

0.5

%

(40

)

(1.7

)%

Connecticut

Large Group

92

94

124

(2

)

(2.1

)%

(32

)

(25.8

)%

Small Group and Individual

23

24

25

(1

)

(4.2

)%

(2

)

(8.0

)%

Commercial Risk

115

118

149

(3

)

(2.5

)%

(34

)

(22.8

)%

ASO

26

26

25

0

0.0

%

1

4.0

%

Total Commercial

141

144

174

(3

)

(2.1

)%

(33

)

(19.0

)%

Medicare Advantage

52

52

57

0

0.0

%

(5

)

(8.8

)%

Medicaid

0

0

0

0

0.0

%

0

0.0

%

Total Connecticut

193

196

231

(3

)

(1.5

)%

(38

)

(16.5

)%

New York

Large Group

97

98

104

(1

)

(1.0

)%

(7

)

(6.7

)%

Small Group and Individual

145

115

109

30

26.1

%

36

33.0

%

Commercial Risk

242

213

213

29

13.6

%

29

13.6

%

ASO

7

7

11

0

0.0

%

(4

)

(36.4

)%

Total Commercial

249

220

224

29

13.2

%

25

11.2

%

Medicare Advantage

2

3

6

(1

)

(33.3

)%

(4

)

(66.7

)%

Total New York

251

223

230

28

12.6

%

21

9.1

%

New Jersey

Large Group

19

19

22

0

0.0

%

(3

)

(13.6

)%

Small Group and Individual

61

56

56

5

8.9

%

5

8.9

%

Commercial Risk

80

75

78

5

6.7

%

2

2.6

%

ASO

2

3

3

(1

)

(33.3

)%

(1

)

(33.3

)%

Total Commercial

82

78

81

4

5.1

%

1

1.2

%

Medicaid

51

49

44

2

4.1

%

7

15.9

%

Total New Jersey

133

127

125

6

4.7

%

8

6.4

%

Arizona

Large Group

64

69

84

(5

)

(7.2

)%

(20

)

(23.8

)%

Small Group and Individual

39

43

54

(4

)

(9.3

)%

(15

)

(27.8

)%

Commercial Risk

103

112

138

(9

)

(8.0

)%

(35

)

(25.4

)%

Medicare Advantage

65

65

64

0

0.0

%

1

1.6

%

Total Arizona

168

177

202

(9

)

(5.1

)%

(34

)

(16.8

)%

Oregon

Large Group

86

89

103

(3

)

(3.4

)%

(17

)

(16.5

)%

Small Group and Individual

47

46

36

1

2.2

%

11

30.6

%

Commercial Risk

133

135

139

(2

)

(1.5

)%

(6

)

(4.3

)%

Medicare Advantage

24

23

22

1

4.3

%

2

9.1

%

Total Oregon

157

158

161

(1

)

(0.6

)%

(4

)

(2.5

)%

Other States

Medicare Advantage

7

7

10

0

0.0

%

(3

)

(30.0

)%

Medicare PDP (stand-alone)

458

449

526

9

2.0

%

(68

)

(12.9

)%

Total Health Plan Enrollment

Large Group

1,266

1,289

1,408

(23

)

(1.8

)%

(142

)

(10.1

)%

Small Group and Individual

695

677

733

18

2.7

%

(38

)

(5.2

)%

Commercial Risk

1,961

1,966

2,141

(5

)

(0.3

)%

(180

)

(8.4

)%

ASO

38

38

44

0

0.0

%

(6

)

(13.6

)%

Total Commercial

1,999

2,004

2,185

(5

)

(0.2

)%

(186

)

(8.5

)%

Medicare Advantage

284

282

285

2

0.7

%

(1

)

(0.4

)%

Medicare PDP (stand-alone)

458

449

526

9

2.0

%

(68

)

(12.9

)%

Medi-Cal/Medicaid

878

842

781

36

4.3

%

97

12.4

%

Total Health Plans

3,619

3,577

3,777

42

1.2

%

(158

)

(4.2

)%

TRICARE - North Contract Eligibles

3,040

3,004

2,951

36

1.2

%

89

3.0

%

Health Net, Inc.

Enrollment Data - Line of Business

(In thousands)

Change from

March 31, 2009

June 30, 2008

June 30,

Mar 31,

June 30,

Increase/

%

Increase/

%

2009

2009

2008

(Decrease)

Change

(Decrease)

Change

Large Group

California

908

920

971

(12

)

(1.3

)%

(63

)

(6.5

)%

Connecticut

92

94

124

(2

)

(2.1

)%

(32

)

(25.8

)%

New York

97

98

104

(1

)

(1.0

)%

(7

)

(6.7

)%

New Jersey

19

19

22

0

0.0

%

(3

)

(13.6

)%

Arizona

64

69

84

(5

)

(7.2

)%

(20

)

(23.8

)%

Oregon

86

89

103

(3

)

(3.4

)%

(17

)

(16.5

)%

1,266

1,289

1,408

(23

)

(1.8

)%

(142

)

(10.1

)%

Small Group and Individual

California

380

393

453

(13

)

(3.3

)%

(73

)

(16.1

)%

Connecticut

23

24

25

(1

)

(4.2

)%

(2

)

(8.0

)%

New York

145

115

109

30

26.1

%

36

33.0

%

New Jersey

61

56

56

5

8.9

%

5

8.9

%

Arizona

39

43

54

(4

)

(9.3

)%

(15

)

(27.8

)%

Oregon

47

46

36

1

2.2

%

11

30.6

%

695

677

733

18

2.7

%

(38

)

(5.2

)%

Commercial Risk

California

1,288

1,313

1,424

(25

)

(1.9

)%

(136

)

(9.6

)%

Connecticut

115

118

149

(3

)

(2.5

)%

(34

)

(22.8

)%

New York

242

213

213

29

13.6

%

29

13.6

%

New Jersey

80

75

78

5

6.7

%

2

2.6

%

Arizona

103

112

138

(9

)

(8.0

)%

(35

)

(25.4

)%

Oregon

133

135

139

(2

)

(1.5

)%

(6

)

(4.3

)%

1,961

1,966

2,141

(5

)

(0.3

)%

(180

)

(8.4

)%

ASO

California

3

2

5

1

50.0

%

(2

)

(40.0

)%

Connecticut

26

26

25

0

0.0

%

1

4.0

%

New York

7

7

11

0

0.0

%

(4

)

(36.4

)%

New Jersey

2

3

3

(1

)

(33.3

)%

(1

)

(33.3

)%

38

38

44

0

0.0

%

(6

)

(13.6

)%

Total Commercial

California

1,291

1,315

1,429

(24

)

(1.8

)%

(138

)

(9.7

)%

Connecticut

141

144

174

(3

)

(2.1

)%

(33

)

(19.0

)%

New York

249

220

224

29

13.2

%

25

11.2

%

New Jersey

82

78

81

4

5.1

%

1

1.2

%

Arizona

103

112

138

(9

)

(8.0

)%

(35

)

(25.4

)%

Oregon

133

135

139

(2

)

(1.5

)%

(6

)

(4.3

)%

1,999

2,004

2,185

(5

)

(0.2

)%

(186

)

(8.5

)%

Medicare Advantage

California

134

132

126

2

1.5

%

8

6.3

%

Connecticut

52

52

57

0

0.0

%

(5

)

(8.8

)%

New York

2

3

6

(1

)

(33.3

)%

(4

)

(66.7

)%

Arizona

65

65

64

0

0.0

%

1

1.6

%

Oregon

24

23

22

1

4.3

%

2

9.1

%

Other States

7

7

10

0

0.0

%

(3

)

(30.0

)%

284

282

285

2

0.7

%

(1

)

(0.4

)%

Medi-Cal/Medicaid

California

827

793

737

34

4.3

%

90

12.2

%

Connecticut

0

0

0

0

0.0

%

0

0.0

%

New Jersey

51

49

44

2

4.1

%

7

15.9

%

878

842

781

36

4.3

%

97

12.4

%

Medicare PDP (stand-alone)

458

449

526

9

2.0

%

(68

)

(12.9

)%

Total Health Plan Enrollment

Large Group

1,266

1,289

1,408

(23

)

(1.8

)%

(142

)

(10.1

)%

Small Group and Individual

695

677

733

18

2.7

%

(38

)

(5.2

)%

Commercial Risk

1,961

1,966

2,141

(5

)

(0.3

)%

(180

)

(8.4

)%

ASO

38

38

44

0

0.0

%

(6

)

(13.6

)%

Total Commercial

1,999

2,004

2,185

(5

)

(0.2

)%

(186

)

(8.5

)%

Medicare Advantage

284

282

285

2

0.7

%

(1

)

(0.4

)%

Medicare PDP (stand-alone)

458

449

526

9

2.0

%

(68

)

(12.9

)%

Medi-Cal/Medicaid

878

842

781

36

4.3

%

97

12.4

%

Total Health Plans

3,619

3,577

3,777

42

1.2

%

(158

)

(4.2

)%

TRICARE - North Contract Eligibles

3,040

3,004

2,951

36

1.2

%

89

3.0

%

Health Net, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except per share, PMPM and ratio data)

Quarter Ended

Quarter Ended

Quarter Ended

June 30,

March 31,

June 30,

REVENUES:

2008

2009

2009

Health plan services premiums

$

3,114,168

$

3,139,251

3,152,783

Government contracts

694,885

759,339

832,088

Net investment income

20,931

24,321

20,432

Administrative services fees and other income

11,516

9,892

8,387

3,841,500

3,932,803

4,013,690

EXPENSES:

Health plan services

2,655,066

2,721,779

2,718,039

Government contracts

658,255

725,002

791,044

General and administrative

297,475

354,910

332,188

Selling

88,243

81,410

81,359

Depreciation and amortization

13,073

16,040

15,708

Interest

11,316

9,567

11,518

3,723,428

3,908,708

3,949,856

Income from operations before income taxes

118,072

24,095

63,834

Income tax provision

41,394

2,060

23,694

Net income

$

76,678

$

22,035

$

40,140

Basic earnings per share

$

0.71

$

0.21

$

0.39

Diluted earnings per share

$

0.71

$

0.21

$

0.38

Weighted average shares outstanding:

Basic

107,308

103,766

103,854

Diluted

108,338

104,265

104,323

Pretax margin

3.1

%

0.6

%

1.6

%

Health plan services MCR

85.3

%

86.7

%

86.2

%

Government contracts cost ratio

94.7

%

95.5

%

95.1

%

G&A expense ratio

9.5

%

11.3

%

10.5

%

Selling costs ratio

2.8

%

2.6

%

2.6

%

Days claims payable (a)

47.8

44.1

43.1

Days claims payable - adjusted (a)

56.0

55.1

54.2

Effective tax rate

35.1

%

8.5

%

37.1

%

Health plan services premiums PMPM

$

278.25

$

295.91

$

295.11

Health plan services costs PMPM

$

237.23

$

256.56

$

254.41

Health Net, Inc.

Reconciliation of Non-GAAP Financial Measures

Operating Results Excluding Charges

(Amounts in thousands, except per share, PMPM and ratio data)

Note: This table presents the company's consolidated operations
for the periods presented below and the charges recorded in the
consolidated statement of operations. Management believes that the
presentation of certain financial information in the attached
press release (such as Net investment income, Health plan services
expense, General and administrative expense, Income before income
taxes, Income tax provision, Net income, Basic and diluted
earnings per share, Pretax margin, MCR, G&A expense ratio, and
effective tax rate), excluding the charges that were recorded, all
of which are non-GAAP financial information, are important to
investors as they exclude special items that are not indicative of
our core operating results. This non-GAAP financial information
should be considered in addition to, not as a substitute for,
financial information prepared in accordance with GAAP.

Quarter Ended June 30, 2008

Quarter Ended March 31, 2009

Quarter Ended June 30, 2009

Excluding

Excluding

Excluding

Impact of

Impact of

Impact of

Impact of

Impact of

Impact of

As Reported

Charge1

Charge

As Reported

Charge2

Charge

As Reported

Charge3

Charge

REVENUES:

Health plan services premiums

$

3,114,168

$

3,114,168

$

3,139,251

$

3,139,251

$

3,152,783

$

3,152,783

Government contracts

694,885

694,885

759,339

759,339

832,088

832,088

Net investment income

20,931

20,931

24,321

24,321

20,432

20,432

Administrative services fees and other income

11,516

11,516

9,892

9,892

8,387

8,387

3,841,500

-

3,841,500

3,932,803

-

3,932,803

4,013,690

-

4,013,690

EXPENSES:

Health plan services

2,655,066

2,655,066

2,721,779

$

(2,178

)

2,723,957

2,718,039

(2,056

)

2,720,095

Government contracts

658,255

658,255

725,002

725,002

791,044

791,044

General and administrative

297,475

13,037

284,438

354,910

$

46,934

307,976

332,188

19,646

312,542

Selling

88,243

88,243

81,410

81,410

81,359

81,359

Depreciation and amortization

13,073

13,073

16,040

16,040

15,708

15,708

Interest

11,316

11,316

9,567

9,567

11,518

11,518

3,723,428

13,037

3,710,391

3,908,708

44,756

3,863,952

3,949,856

17,590

3,932,266

Income (loss) from operations before income taxes

118,072

(13,037

)

131,109

24,095

(44,756

)

68,851

63,834

(17,590

)

81,424

Income tax provision (benefit)

41,394

(9,739

)

51,133

2,060

(24,516

)

26,576

23,694

(6,977

)

30,671

Net income (loss)

$

76,678

$

(3,298

)

$

79,976

$

22,035

$

(20,240

)

$

42,275

$

40,140

$

(10,613

)

$

50,753

Basic earnings (loss) per share

$

0.71

$

0.75

$

0.21

$

(0.20

)

$

0.41

$

0.39

$

(0.10

)

$

0.49

Diluted earnings (loss) per share

$

0.71

$

(0.03

)

$

0.74

$

0.21

$

(0.20

)

$

0.41

$

0.38

$

(0.11

)

$

0.49

Weighted average shares outstanding:

Basic

107,308

107,308

103,766

103,766

103,854

103,854

Diluted

108,338

108,338

104,265

104,265

104,323

104,323

Pretax margin

3.1

%

-0.3

%

3.4

%

0.6

%

-1.2

%

1.8

%

1.6

%

-0.4

%

2.0

%

Health plan services MCR

85.3

%

0.0

%

85.3

%

86.7

%

-0.1

%

86.8

%

86.2

%

-0.1

%

86.3

%

Government contracts cost ratio

94.7

%

-

94.7

%

95.5

%

-

95.5

%

95.1

%

-

95.1

%

G&A expense ratio

9.5

%

0.4

%

9.1

%

11.3

%

1.5

%

9.8

%

10.5

%

0.6

%

9.9

%

Selling costs ratio

2.8

%

-

2.8

%

2.6

%

-

2.6

%

2.6

%

-

2.6

%

Effective tax rate

35.1

%

-3.9

%

39.0

%

8.5

%

-30.1

%

38.6

%

37.1

%

-0.6

%

37.7

%

1 Includes a $0.7 million pretax benefit for a
litigation reserve true-up and a $13.7 million pretax charge
primarily for severance and other expenses related to the
company's operations strategy and included in G&A.

2 Includes a $2.2 million pretax benefit for a
litigation reserve true-up included in health plan services
expenses and a $46.9 million pretax charge primarily for severance
and other expenses related to the company's operations strategy
and included in G&A.

3 Includes a $2.1 million pretax benefit for a
litigation reserve true-up included in health plan services
expenses and a $19.7 million pretax charge primarily for severance
and other expenses related to the company's operations strategy
and included in G&A.

Health Net, Inc.

Consolidated Balance Sheet

(Amounts in thousands, except ratio data)

June 30,

March 31,

June 30,

2008

2009

2009

ASSETS

Current Assets

Cash and cash equivalents

$

760,648

$

739,824

$

565,856

Investments - available for sale

1,514,421

1,374,883

1,477,651

Premiums receivable, net

400,918

417,664

414,199

Amounts receivable under government contracts

262,877

265,028

279,290

Incurred but not reported (IBNR) health care costs receivable
under TRICARE North contract

280,801

290,835

334,104

Other receivables

92,310

198,688

181,563

Deferred taxes

107,478

104,154

77,600

Other assets

223,326

199,517

207,383

Total current assets

3,642,779

3,590,593

3,537,646

Property and equipment, net

234,423

178,248

169,925

Goodwill, net

751,949

751,949

751,949

Other intangible assets, net

101,216

86,935

82,698

Deferred taxes

55,096

55,549

67,247

Investments - available for sale-noncurrent

-

-

60,047

Other noncurrent assets

135,896

141,344

133,501

Total Assets

$

4,921,359

$

4,804,618

$

4,803,013

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Reserves for claims and other settlements

$

1,357,756

$

1,328,709

$

1,243,517

Health care and other costs payable under government contracts

78,341

71,486

76,709

IBNR health care costs payable under TRICARE North contract

280,801

290,835

334,104

Unearned premiums

190,204

209,019

184,881

Borrowings under amortizing financing facility

26,028

133,519

117,999

Accounts payable and other liabilities

327,782

317,862

352,890

Total current liabilities

2,260,912

2,351,430

2,310,100

Senior notes payable

398,173

398,327

398,378

Borrowings under amortizing financing facility

117,984

-

-

Borrowings under revolving credit facility

145,000

100,000

100,000

Other noncurrent liabilities

215,199

179,944

167,993

Total Liabilities

3,137,268

3,029,701

2,976,471

Stockholders' Equity

Common stock and additional paid-in capital

1,173,132

1,185,297

1,191,021

Treasury common stock, at cost

(1,267,192

)

(1,368,825

)

(1,368,825

)

Retained earnings

1,890,095

1,966,135

2,006,275

Accumulated other comprehensive loss

(11,944

)

(7,690

)

(1,929

)

Total Stockholders' Equity

1,784,091

1,774,917

1,826,542

Total Liabilities and Stockholders' Equity

$

4,921,359

$

4,804,618

$

4,803,013

Debt-to-Total Capital Ratio

27.8

%

26.3

%

25.2

%

Health Net, Inc.

Consolidated Statements of Cash Flows

(Amounts in thousands)

Quarter Ended

Quarter Ended

Quarter Ended

June 30,

March 31,

June 30,

2008

2009

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

76,678

$

22,035

$

40,140

Adjustments to reconcile net income to net cash operating
activities:

Amortization and depreciation

13,073

16,040

15,708

Share-based compensation expense

7,888

5,838

5,987

Deferred income taxes

1,975

10,424

11,579

Excess tax benefits from share-based compensation

(6

)

-

-

Asset and investment impairment charges

841

11,893

491

Other changes

4,796

(2,719

)

1,140

Changes in assets and liabilities:

Premiums receivable and unearned premiums

(58,723

)

(81,664

)

(20,673

)

Other receivables, deferred taxes and other assets

35,652

44,979

29,290

Amounts receivable/payable under government contracts

8,196

(22,149

)

(9,039

)

Reserves for claims and other settlements

(72,974

)

(9,440

)

(85,192

)

Accounts payable and other liabilities

(97,888

)

(1,062

)

(43,598

)

Net cash used in operating activities

(80,492

)

(5,825

)

(54,167

)

CASH FLOWS FROM INVESTING ACTIVITIES:

Sales of investments

209,569

331,926

307,407

Maturities of investments

89,812

55,038

51,010

Purchases of investments

(296,988

)

(257,567

)

(455,652

)

Proceeds from sale of property and equipment

-

3,835

-

Purchases of property and equipment

(60,078

)

(4,782

)

(5,081

)

Net sales and purchases of restricted investments and other

1,959

504

(41

)

Net cash (used in) provided by investing activities

(55,726

)

128,954

(102,357

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options and employee stock purchases

842

-

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Health Net, Inc.'s business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.